World Bank business rankings obscure poverty and corruption, critics argue

Some of the best places in the world to start and run a business have proved hugely controversial, like former Soviet satellite state Georgia and central African nation Zambia

Georgians walk during the annual celebration in Tbilisi. Georgia’s GDP grew by 7.1% last year and is projected to grow by 4.5% this year, yet the official unemployment rate remains at 15%. Photograph: Vano Shlamov/AFP/Getty Images

There is a reasonable expectation that western countries will appear in the top 50 of a list that values a country that can offer speedy property registration and access to electricity. The rankings also reward countries that can boast a legal system which enforces contracts fairly and protects creditors when a company goes bust.

Putting in place these basic building blocks should be meat and drink to developed nations, though persuading the local electricity supplier to plug new customers into the grid often seems difficult in all parts of the world.

Yet there are many countries in or near the top 50 of the World Bank's rankings that have proved hugely controversial.

Georgia, the former Soviet satellite state, has jumped into 9th place from 112th in 2005 after a decade-long struggle with corruption that the World Bank and anti-corruption agency Transparency International claim is succeeding, but which many experts say still leaves many corrupt practices in place.

The anti-poverty charity Care International says incomes and living standards remain low across most of the south Caucasus despite consistently high GDP growth. In a recent report on Georgia and Armenia, which has climbed the rankings above France to the number 32 spot, the charity said poverty is "pervasive".

Peter Bakvis of the International Trade Union Confederation, says Georgia was rewarded for embarking on "massive deregulation and the elimination of worker health and safety rules".

Georgia's GDP grew by 7.1% last year and is projected to grow by 4.5% this year, yet the official unemployment rate remains at 15%. Likewise Kazakhstan, which ranks at 49, has 47% of its population subsisting on low incomes according to a United Nations report and is high on most experts' list of corrupt countries.

African trade unions make the same complaint. Some have seen their countries grow by 5% or more each year for a decade and leap up the Doing Business rankings while millions of their citizens suffer extreme poverty and workers cannot find a job that pays a decent wage.

At a debate organised by the Bretton Woods project and supported by aid charity Cafod during the World Bank's annual meeting in Tokyo earlier this month, Augusto López-Claros, director of global indicators and analysis at the Washington-based agency, was clear his mission is to fight poverty. He maintained that the business rankings showed which nations were stable economies and the ones tht provide a sound platform for wealth creation.

Geoffrey Chongo of the Jesuit Centre for Theological Reflection in Zambia is a long term critic of the rankings. He says most people in Zambia, which is one of the world's largest copper producers, have remained in poverty despite soaring national income growth and annual rises up the rankings.

He argues the central African nation has proved unwilling or unable to generate taxes from mining companies, leaving ministers no option but to tax workers more heavily. Starved of domestic capital, the government was forced recently to borrow $750m (£465m) from the international markets in the form of a bond to generate much needed funds for investment.

López-Claros argued issuing a bond was a great achievement and revealed a high level of confidence in Zambia. But Chongo said Zambia's attraction was the 16% effective tax rate on corporations, while workers paid 25% on their incomes.

Zambia earned a paltry $50m from mining royalty revenues in 2009 despite the industry generating £5bn in sales. Corporation tax from other areas and PAYE brought the total to $500m, according to the Extractive Industry Transparency Initiative. But at 10%, the tax rate was considered a failure by all but the Banda government, which scrapped a windfall tax that had previously gone some way to making up the tax gap.

Similarly, Zambia was ranked 8th in the "getting access to credit indicator" in 2011, "yet small businesses still cite access to credit as their biggest challenge with more than 90% of SMEs saying they lack access to credit with interest rates above 25%," says Chongo.

He believes the Zambian government has been obsessed with getting a top 50 ranking and was prepared to starve SME development in favour of multinationals to get it. He can expect more of the same after a 10 place drop in the 2013 list to 94th as other nations worked harder to meet the criteria.

Bin Han, one of China's senior representatives at the World Bank, says the rankings are fundamentally flawed.

"The Chinese conclusion is straightforward: the report has used a wrong methodology, failed to reflect facts in individual countries, and misled readers. The questionable quality of the report has ruined the Bank's reputation," he said at the debate.

The new boss at the World Bank, Jim Yong Kim, has pledged to review the rankings. Maybe he needs to scrap them in favour of individual country reports. It seems not only invidious but also farcical to say that Rwanda boasts a better infrastructure for business than Italy.